With Lula in jail, the future of democracy in Brazil is at stake

As the Brazilian Election looms, Alfredo Saad-Filho examines what Lula da Silva's prosecution means for the future of democracy.

April 28, 2018
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12 min read

Former President Luís Inácio Lula da Silva, the most popular politician in Brazil, has been jailed for 12 years and 1 month for corruption. This was the outcome of an unprecedented judicial persecution already lasting four years: the most egregious case of lawfare in the world today. The affair is thought to have contributed to the sudden death of Lula’s wife Marisa. His bank accounts, savings and pensions have been blocked, rendering him destitute. Yet, no allegation has been proven, and this ruling comes courtesy of a judge overtly aligned with a right-wing party and with close contacts with the US Department of Justice, who also played the roles of prosecutor and jury. It gets worse the closer you look.

Trade union roots

Lula has long proved a divisive figure – but before his imprisonment, he was ahead in the polls in the run-up to this year’s elections. The summary imprisonment has sounded the alarm for many people – even those who might not agree with his politics – about a danger to the fabric of Brazil’s democracy. How did a rising global power with a vibrant democracy plummet into a political abyss?

Luís Inácio Lula da Silva was the most influential trade union leader in Brazil in the 1970s, and the most important leader of the ‘new unions’ emerging under the military dictatorship. These combative unions were centred in the consumer goods industries, state-owned enterprises and the civil service.

Between the late 1970s and early 1980s, Lula led some of the largest and most influential workers’ strikes in Brazilian history. He was also the leading founder of the Brazilian Workers’ Party (PT) in the early 1980s, spending several years as party president. But, despite media hype at the time, Lula was never a ‘socialist’ of any description. He was always a social democrat, and a negotiator: he is impressively good at reaching agreement across economic and political divides, and this quality was essential in his political trajectory.

Compromise and strategise

As leader of the PT, Lula fought and lost three presidential elections, in 1989, 1994 and 1998. Each time the party fought a more moderate campaign, with a growing appeal to the political centre and the middle class, as the Brazilian working class and the civil service were decimated by the transition to neoliberalism, deindustrialisation, informalisation, privatisation, and the ‘retrenchment’ of the public sector.

In the run-up to the 2002 elections, Lula and the PT put together an extremely broad coalition encompassing the traditional worker base of support of the PT, radicalised peasants represented by the landless peasants’ movement (MST), the ‘progressive’ section of the middle class, and a large chunk of Brazil’s domestic bourgeoisie. They were represented by Lula’s vice-Presidential candidate, José Alencar, a self-made man, leader of the textile industry, and a nationalist politician affiliated to a centre-right party.

Lula’s rise in the opinion polls in early 2002 went alongside with to considerable turbulence in the exchange rate and in the market for government securities. Threats of a balance of payments crisis and fiscal collapse led Lula to issue a ‘Letter to the Brazilian People’ four months before the election, committing his government to the neoliberal macroeconomic policies that had been imposed by President Fernando Henrique Cardoso, of the right-wing PSDB, then (as well as now) the main rival of the PT.

Lula was elected comfortably. He appointed Henrique Meirelles, prominent international banker and member of the PSDB as president of the Central Bank – who would go on to become Minister of Finance in 2016. In appointing Meirelles, Lula was trying to negotiate an agreement with finance, international capital and the Brazilian elite. He would not change macroeconomic policy – and exchange they would allow him to focus on social policy, distribute income at the margin, and reduce Brazil’s staggering poverty.

Reality bites

This is what Lula’s first administration tried to do, until reality interfered in two ways. First, the government discovered that neoliberal macroeconomic policies (fiscal austerity, high interest rates, inflation targets, an independent central bank, free international flows of capital and so on) are incompatible with the rapid economic growth needed to deliver on his social policies. Second, they also discovered that political moderation was insufficient to appease the traditional elite.

The government’s failure to deliver rapid economic growth was not the deal-breaker. Cardoso’s administration also failed to do that (instead, during his period in office Brazil grew even less than it did during the ‘lost decade’ of the 1980s, after the international debt crisis). Similarly, the Temer administration has also been unable to unleash a cycle of growth. The thing that caused upset amongst the elites was the fact that, during Lula’s first administration, the mainstream media, the judiciary, the upper middle class and the financial elite resented their dislocation from the state institutions and the inner circle of power.

In order to recapture state power, the Brazilian elites concocted the so-called mensalão scandal, in 2005. This was a convoluted story alleging that the PT was paying a monthly stipend to several Deputies and Senators, so they would support government bills in Congress. No evidence was ever provided and the story has remained unproven, but the scandal powerfully captured the public imagination. The mensalão nearly led to Lula’s impeachment, tarnished irreparably the image of the PT, and destroyed Minister of Finance Antonio Palocci, and Lula’s Chief of staff José Dirceu and several other party leaders. They ended up in prison for long periods of time.

Riding high on the economic boom

Lula recovered only because of his growing support among the poor and the industrial elite. He was re-elected in 2006, and proceeded to implement much bolder economic policies, in line with this new base of support. Lula was also fortunate, because Brazil was riding on the cycle of prosperity brought about by the global commodity boom of the early and mid-2000s.

The economy started to grow faster, and the government had resources to raise the minimum wage, increase transfers, implement more ambitious social policies and introduce much bolder industrial policies, including support for ‘national champions’ – large domestic companies that should expand both at home and abroad, following the example of the Japanese and South Korean conglomerates that drove growth, innovation and exports in those countries. The ‘champions’ ranged from big oil and mining conglomerates to banking and telecoms companies. Perhaps not by coincidence, these were exactly the firms that the lavajato anti-corruption operation would target years later, and that the post-coup Temer administration would seek to dismantle.

The policies implemented in the second Lula administration were highly successful, and Brazil saw significant improvements in employment creation, formalisation of labour, distribution of income, education, health, and social indicators. Correspondingly, Lula’s popularity rose to unprecedented levels: when he stepped down, in 2010, his approval rating exceeded 80 per cent, making him the most popular politician in Republican history.

From economic crisis to political crisis

Dilma Rousseff, Lula’s chosen successor, was not so fortunate. After the crisis of 2008, Brazil managed to keep itself economically afloat until 2011. Nonetheless the country was heavily hit by the deflation of the commodity markets. Dilma’s administration could not keep the economy growing, and she could not keep together the coalition that Lula had assembled. Her government gradually collapsed.

Perhaps the PT administrations could have delivered a virtuous cycle of growth, political stability, and gains in distribution. However, the administrations led by Lula and Rousseff were limited at five levels.

Firstly, their attachment to neoliberal economic policies was meant to secure economic stability and credibility with capital. However, the limitations that neoliberal policies impose limitations upon growth, distribution and social inclusion. There were grumbles of dissatisfaction (and the mensalão) when Lula and Dilma tried to change those outcomes; the media and the elite rebelled against the PT administrations when they tried to shift the neoliberal policies themselves.

Secondly, high interest rates, free capital flows and a persistently overvalued currency meant that domestic income growth wouldn’t necessarily show the goods in the home state – but necessarily leak abroad, in the form of rising imports. The consequence was deindustrialisation at home, the loss of skilled jobs and the reprimarisation of the economy, with the growth of agribusiness at the expense of manufacturing industry. The economy created 21 million jobs in the 2000s (in contrast with 11 million during the orthodox neoliberal 1990s), but they were mostly precarious and poorly paid. They could not fulfill the expectations of the middle class, or the aspirations of the rising working class, which – thanks to the dramatic expansion of higher education under Lula – was now going to university in ever greater numbers.

Third, lack of investment and a weak industrial policy prevented the upgrading of economic and social infrastructure, and fostered an intractable productivity gap, first, in relation to the advanced Western economies; then, with the fast-growing East Asian ‘miracle’ economies and, finally, with China. By virtue of its weak policymaking capacity, Brazil has locked itself underneath those countries in the international division of labour. For this reason alone, there is no prospect of sustained economic growth in the coming years.

Fourth, the economy suffered because of the deterioration of the economic environment after the global crisis, and the impact of successive waves of ‘quantitative easing’ in the advanced economies. Brazil simply did not have the tools to neutralise the impact of those policies: if a country is locked underneath larger, richer and more dynamic economies, it tends to bear the weight of their macroeconomic adjustments, and to have no policy space to adjust itself.

Fifth, the PT was committed to political stability. However, stability depended on the ability of the PT administrations to deliver gains almost to everyone, which was possible only in times of global prosperity. When global growth faltered, these administrations buckled under the stress. Eventually, policy mistakes, the adverse global environment, the economic slowdown, the growing strength of the opposition and a succession of corruption scandals paralysed the government.

Unpicking a progressive legacy

Since Rousseff was was overthrown by a civilian-judicial coup in 2016, the administration led by her former Vice-President Michel Temer has been enforcing an uncompromising orthodox neoliberalism including a severe fiscal contraction. They’ve pushed through a constitutional amendment imposing a public spending freeze for 20 years, launched a huge attack on labour rights, and dismantled the skeletal welfare state that had been built in Brazil. The income and employment gains achieved under the PT have evaporated. Equally worrying is the fact that the far right has recovered a mass base for the first time since the early 1960s.

Despite all this, or perhaps because of it, Lula remains the most popular politician in Brazil. He is leading in all the opinion polls as a potential candidate for the presidential elections scheduled for October 2018. Preventing his election has become a priority for the putschists, the country’s most influential judges and prosecutors, and virtually the entire mainstream media.

The future of democracy at stake

Lula is, now, a political prisoner – and he must be defended and supported by everyone committed to democracy. It is scandalous to politicise justice, to have the US government guiding policymaking and the judicial persecution of Lula. It is scandalous to turn the legal process into a spectacle, and to invite the military back into politics, as Temer has done, in order to bolster his authority through threats of military intervention.

Lula’s crime was to be a worker and a political leader in an elitist country. His crime was to be popular in a country of dreadful politicians. His crime was to be an outsider from the elites that have governed Brazil for 500 years. Because of that, Lula – as well as Dilma – was presumed guilty and punished despite the absence of proof, while the politicians in power are deemed to be innocent despite the evidence of guilt.

Lula’s legacy is a complex one for the left, and for the country as a whole. In many ways, his reforms transformed the country, but they were secured by making a devil’s bargain with Brazilian elites – who are now trying to ruin his political career once and for all. But if we want any possibility of a democratic government, we have to resist such brazen attempts by the corrupt people in power to shut down any political movements which defy them. The challenge for the left is to confront the coup, and rebuild a democratic movement that will clean up the political system, and put the media, the judicial system and the state at the service of political freedom.

With the rise of Bolsonaro and big corporations cannibalising the countryside, Brazil is living proof of Thomas Piketty’s assertion that capitalist accumulation in the 21st century is not compatible with democracy. By Sue Branford